7 Reasons You’ll Be in Debt Forever

Getting out of debt

Getting into debt is easy — and the numbers prove it. Eight out of 10 Americans have debt, according to a report by The Pew Charitable Trusts. And the total amount of household debt in America is nearly $12 trillion, according to the Federal Reserve Bank of New York’s most recent report on household debt and credit.

There are plenty of ways people fall into debt. The hard part can be getting out of debt, especially if you don’t recognize — or resist admitting — how you racked up debt. Here are seven reasons you might have fallen into debt and how to avoid being stuck with it forever.

Related: Should You Ever Pay Your Significant Other’s Debt?

1. You Believe Debt Is Part of Life

One of the biggest reasons people get stuck in debt is because they believe that debt is just a part of life, said Debbi King, owner of the personal finance coaching firm The ABC’s of Personal Finance. In fact, the Pew study found that seven people out of 10 said debt is a necessity in their lives. “However, debt is a result of wanting or needing something that you don’t have the cash to buy at the moment,” King said.

But if you are determined to get rid of debt, you can rid yourself of these wants. “You have to not want debt so bad that you refuse to use it no matter what,” she said.

You also need to give yourself a wake-up call by keeping close tabs on your spending to see how much you’re relying on debt to maintain your lifestyle. “You may be using your credit card more than you realize,” said Bruce McClary, spokesman for the National Foundation for Credit Counseling (NFCC).

Once you figure out how much you owe, make a plan to pay off the debt. Having a goal of getting out of debt might give you the motivation you need to stop relying on it.

2. You Use Credit to Cover Emergencies

Many people assume they will never fall deeply into debt, said Matt Cosgriff, a certified financial planner with Lifewise, a financial planning service based in Minneapolis.  “But it can happen so easily if you aren’t financially prepared,” he added.

For example, if you don’t have cash reserves to cover unexpected expenses, you might have to rely on credit cards. You will end up paying more than the original cost of the emergency if you do not pay off the balance quickly because of the interest your card charges. Plus, you might not be able to build savings to cover future emergencies if your money is going toward paying off debt.

You can avoid this situation by creating an emergency fund, Cosgriff said. Ideally, you should save enough to cover up to six months of expenses. If necessary, start by setting aside a little each month, then increase the amount when you can. And make sure you have adequate insurance to cover catastrophic events, such as a medical emergency or car accident.

3. You Are Overwhelmed by Student Loans

Student loan debt has reached $1.19 trillion, and payments on more than 11 percent of this student loan debt is at least 90 days late, according to the Federal Reserve Bank of New York. “So many people right now are burdened with student loan debt,” McClary said.

If your student loan debt is unmanageable, McClary recommends talking to a certified student loan counselor to identify your options, such as income-based repayment or loan consolidation. You can visit Studentloanhelp.org to find an NFCC member that will offer student loan counseling at little or no cost.

To avoid racking up student loan debt, McClary recommended that parents and students look for sources of free money for college, such as grants and scholarships. And families should weigh the costs of the schools their child wants to attend against the child’s earning potential after graduation. That will help the family determine whether the child will be able to pay off student loans.

Related: 5 Easy Ways to Pay Off Debt Before the Holiday Season

4. You Make Only Minimum Payments

It’s hard to eliminate debt if you’re only paying the minimum you owe. In fact, McClary said it can become unmanageable if your balance continues to grow while you’re paying the minimum amount required.

For example, if you have a $5,000 balance on a card with a 17 percent rate and make a minimum monthly payment of 3 percent of your balance, it will take you 189 months — or nearly 14 years — to pay off your debt. Meanwhile, you will pay more than $4,000 in interest, according to Navy Federal Credit Union’s minimum payment calculator.

Simply increasing the amount you pay can make a big difference. For example, you can cut the payoff time and interest in half by boosting your monthly payment to 5 percent of your balance.

5. You Allow Expenses to Rise With Income

Andy Brantner, a certified financial planner and investment blogger at Start Investing Online, knows financial discipline does not come easy. “It’s hard not to buy a better car or a bigger house when you get a raise,” he said. “But failing to keep your expenses steady when your income goes up creates a vicious cycle.”

It can be especially dangerous if you are still carrying debt from the days when you were earning less, and now are taking on more loans to help pay for that bigger house or better car. Your debt will balloon, leaving you unable to pay if off despite the bigger paycheck.

To avoid this, identify goals and review your spending to see if it’s in line with your priorities. If it’s not, here is how to create a spending plan that will align your expenditures with your values.

6. You Go Overboard During the Holidays

Nearly half of those surveyed recently by credit reporting agency Experian said they plan to rely on credit to cover the cost of some of their holiday spending. That can lead to starting off the new year in debt. If you don’t pay it off quickly and turn to credit again every holiday season, your debt will mount.

“It’s really important at this time of year for people who might have a weakness to find support,” McClary said. Find a credit counselor through NFCC.org or look for a workshop to get support for building a habit of saving rather than spending, he said.

McClary also recommended avoiding spending time around others who have a tendency to overspend and “getting in situations where you’ll be melting the plastic at the register. Lock up the credit cards this time of year.”

Related: 12 Influential Experts Give Their Top Money Tip for 2016

7. You Use Payday Loans

If you get a payday loan to cover an emergency, it doesn’t mean you will get stuck in debt forever. After all, most of these short-term loans typically have to be paid back within 14 days.

But most people who get payday loans use them to cover everyday expenses, according to a report by Pew. And they often take advantage of rollover features that allow them to extend the amount of time they have to pay off the loans. Because the interest rates on these loans are so high — APRs of 391 percent to 521 percent, according to the Center for Responsible Lending — the debt can mount quickly.

If you roll over a typical payday loan of $325 eight times, you’ll owe $468 in interest and have to repay a total of $793, according to the center. Do that often enough and you will be stuck in debt forever.

Make a plan to quickly pay off any payday loans you might have, even if it means getting a second job. Then take steps to improve your credit so you can qualify for lower-rate conventional loans going forward.